Question

You've been working as a lawyer for the past 3 years - what initiative have you taken on your own to learn more about finance?

Answer 1

As a lawyer, learning about finance entailed understanding the reasons small companies choose private investors over IPOs, benefits of IPOs over traditional loans, the advantage venture capitalists have in accessing information, and differences between bonds and bank loans, as well as calculating equity, which can be foundational in personal and professional financial decisions.

Step-by-step explanation:

As a lawyer interested in finance, taking initiative in learning about corporate finance has been crucial. This involved understanding why small companies opt for private investments and the attractiveness of an IPO for growing enterprises. In approaching career decisions in the future, I'd consider the benefits of learning from various positions, just like internships and fellowships in law practice that provide insight into contracts and business deals. For a person in law, building an understanding of different finance mechanisms is valuable for both personal and professional growth.

To answer the specific questions:

1. Very small companies tend to raise money from private investors initially because an IPO involves high regulatory costs and is more suitable for companies at a more advanced stage that can attract sufficient interest from public investors.
2. Small, young companies might prefer an IPO to access larger amounts of capital and to establish market value for their equity, which is not possible with traditional loans or bond issues.
3. A venture capitalist typically has better information about the potential profitability of a small firm due to the due diligence process and closer relationship with the firm.

In terms of the similarities and differences between a bond and a bank loan, both are debt instruments used by a firm to raise capital. The key difference lies in the structure; a bond can be traded in public markets, while a bank loan is a private agreement with specific terms negotiated between the lender and borrower.

Calculating home equity:

1. Fred's initial equity in the house would be the down payment he made, which is 10% of the $200,000 value, equating to $20,000 in equity.